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China's hard sell in the mild, mild west



HONG KONG, China -- Both the promise and problematic nature of China's ambitious go-west program is evident from the recent visit to the hinterland provinces by 100-odd Hong Kong tycoons and officials.

In internal discussions on the crusade to develop the 12 impoverished provinces in western China -- a crusade known as 'xijin' -- Premier Zhu Rongji highlighted the leadership's sense of urgency.

Zhu indicated that given the possibility of a slow-down in exports to the United States and other markets, the go-west campaign would be a major driver of growth for the rest of the decade.

But while the ambitious program was announced more than a year ago, the number of multinationals going to the poor and relatively inaccessible provinces such as Xinjiang, Tibet, Qinghai, Gansu and Guizhou has been minimal.

A party source said Zhu, dubbed xijin's godfather, had great expectations of the largest-ever Hong Kong business delegation to have visited the mainland.

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"Hong Kong capital played a key role in our open door policy," Zhu said early this month in an internal briefing. "They showed the way for Western and Asian corporations in the first dozen-odd years of the open door policy."

Zhu added that just as Hong Kong businessmen had set the pace for overseas investment along the coast, they should do the same for the vast hinterland.

The premier also told the leaders of Shaanxi, Sichuan and Xinjiang, which the tycoons visited, that they should pull out the stops in selling local business opportunities.

"Be realistic and truthful - and tell Hong Kong businessmen honestly that they should go for long-term investments since it is unlikely money can be made in the short haul," Zhu said.

The premier also insisted they should not feel bad or jealous about Hong Kong bosses making a bundle.

"Let them [Hong Kong firms] realize their profits," Zhu said. "If they do not, they won't re-invest. Nor can they attract the multinationals."

During the ten-day tour, local officials demonstrated an entrepreneurial zeal rarely seen among laid-back cadres in the largely rustic regions.

The three provinces of Shaanxi, Sichuan and Xinjiang alone came up with 527 possible joint-venture projects, which were worth more than 17 billion yuan. These ranged from IT and other hi-tech areas to agriculture, herbal medicine and infrastructure.

The spiel was so free of Marxist dogma the Chinese leaders could have been mistaken for officials from developing countries in the capitalist world.

While the cadres deserve high marks for pragmatism, or what Deng Xiaoping called the "ability to change one's brain," it is also evident much of the xijin crusade has gone against Zhu's dictum that market forces -- not old-style planning -- should prevail.

After all, the premier's best-known instruction on reviving the backwater regions is "we must transform government behavior to market behavior."

Going by the experience of the open door policy in coastal China, Zhu has reached the conclusion that development can only go so far if everything is reliant upon the all-too-visible hand of the state.

Recent events, however, have indicated that for political and other reasons, the go-west crusade is hobbled by too many executive fiats.

Minority development linked to stabilty

Firstly, Zhu, 72, has only 21 more months to go as the head of government. He desperately needs early triumphs in a project that could be a major legacy of his one-term premiership.

Early achievements on the western front will also do wonders for the political fortunes of Vice Premier Wen Jiabao, a key Zhu lieutenant and his candidate for the premier's job.

Secondly, Beijing has to make up for lost time in narrowing the gap between the western provinces, often known as China's Third World, and the relatively opulent coast.

Development of provinces with high concentrations of ethnic minorities such as Tibet, Xinjiang, Yunnan, Guanxi and Inner Mongolia is considered key to maintaining political stability.

The problem of racial discord was illustrated when officials in Xinjiang admitted that local police had gone on full alert to protect the Hong Kong corporate moguls from possible attack from underground Uighur activists.

Apart from the issue of politics intruding upon economics, there is the familiar tendency for cadres to succumb to a Maoist, Great Leap Forward mentality.

While leaders such as Zhu realize that xijin is a work of several decades, cadres including the premier himself cannot help spewing wildly optimistic projections.

While briefing the Hong Kong tycoons in Beijing last week, Zhu claimed those businessmen who took early advantage of the xijin opportunities would "surely join the ranks of the ten richest men in Hong Kong."

Some of the super-special concessions offered by provincial leaders seemed unrealistically generous.

Shaanxi Governor Cheng Andong told the Hong Kong VIPs if they took over insolvent state-owned enterprises (SOEs) in his province, they would not be held responsible for the firms' bad debts. Nor would the Hong Kong bosses be asked to retain the old staff.

Beijing has also announced other sweet deals that are only applicable to western provinces. For example, profit taxes for foreign enterprises would be just 15 percent, or half the current rate. In specific sectors, a Hong Kong or foreign joint venture partner could hold more than 50 percent of the shares.

One Hong Kong manufacturer who went on the tour said these conditions were "too good to be true."

In breach of the WTO

He said the Shaanxi offer seemed unsustainable given the difficulty local governments had experienced in absorbing laid-off workers.

Moreover, banks nationwide had been told to redouble efforts to recover bad loans, including those incurred by insolvent SOEs that had been taken over by foreign firms.

And Beijing will be running foul of the rules of the World Trade Organization - which it will likely join in six months or so - if individual provinces were allowed to offer special tax and other privileges to certain categories of investors.

However, nothing better illustrates the gung-ho mentality of the go-west crusade than the construction binge regarding bridges, highways, railways and airports.

For example, some 100 billion yuan will be spent in the coming five years on railways alone. The Railway Ministry hopes to extend the 16,000 km network in western China to 18,000 km.

Blueprints for about two dozen new airports are also being drawn up.

Money seems no object for poor but strategic provinces such as Tibet, with 99 billion yuan designated for 494 infrastructure and other schemes in the land of the llamas.

While these economic activities will no doubt spur GDP growth, an even more important consideration is how efficient and profitable these prestige projects will be.

Analysts recall the skepticism with which Zhu in the mid-1990s greeted the gargantuan infrastructure splurge in the Pearl River Estuary area.

Zhu, then vice-premier, told leaders from Guangdong so many airports were being built in such proximity that "when the pilots were bringing down their aircraft, they would have difficulty telling one run-way from the other."

Then there is the problematic quality of officials in the 12 western regions, most of whom are not as highly educated or knowledgeable about global norms as counterparts in Shenzhen or Shanghai.

Compared to officials in coastal China, hinterland cadres also seem more susceptible to the Mao-style penchant for embellishing facts - or sweeping the unsightly under the carpet.

A week or so before the Hong Kong delegation arrived Xian, the capital of Shaanxi, the secretary of Vice Mayor Zhang Daohong was murdered by a thug.

For fear that news about the crime would paint Shaanxi in a bad light, municipal and provincial authorities imposed a blackout on the mishap.

And in the course of the tycoons' visit, their hosts made hardly any mention of drawbacks about investing in western China such as transport difficulties, a skimpy legal structure and political tension in areas with high concentrations of ethnic minorities.







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